Introduction to peer to peer lending (P2P Lending)
Peer to Peer Lending or P2P Lending is also called crowdfunding or social lending wherein money is raised and obtained by appealing to individuals over using financial institutions as the middlemen.
It is also otherwise used by borrowers to garner funds from individual investors at easier and convenient rates while the investors receive healthy and opportunistic returns from the funding process over the time. It is an alternative and slowly booming financing alternative for many borrowers and investors.
Understanding Peer to Peer Lending (P2P Lending)
P2P Lending is facilitated via online investing platforms that connect borrowers and investors who are directly involved in the process of sourcing funds. The lenders are investors seeking better returns on the money lent than the interest received on traditional deposits in banks. The borrowers seek easier rates as set by differing websites, for promising returns to the investors. These rates are also dependent on the creditworthiness of the borrower. It also works as a portfolio diversifier due to the range of rates and risk categories clearly defined on the platforms.
The investor opens an account with some money open to lend. The loan applicant provides a financial profile that matches the risk category specified by the lender, which decides the interest and the rate payable. The applicant reviews and chooses one of the offers, and the process is flexible to the extent that the money can be broken into chunks and amounts can be haggled.
Highlights of P2P Lending
The P2P Lending system developed as an alternative for students and others to clear off their debts and loans at a cheaper rate than what banks offered.
It has since expanded its reach with various sites taking up the work of sectioning and providing aid to borrowers on the basis of the nature of their borrowing. For businesses, personal reasons, home development etc. are some examples.
Comparing the terms of each lender and site is essential to make an investment or a borrowing decision.
